Survey points to resilient sector
Oil firms planning for growth despite price fall
The findings of a survey by Bank of Scotland show firms are planning to take on workers, but in smaller numbers. it contrasts with reports that thousands of jobs will be lost as oilfields become less viable.
Bank of Scotland’s fourth annual oil and gas report reveals that 92% of companies are planning to grow investment and jobs over the next two years. Of the 101 companies questioned, 73 expect to create more jobs with only nine expecting to cut back.
Companies are said to unwilling to release too many workers because of skills shortages and the difficulties they may recruiting them in the future.
Alarm bells rang through the industry following the sudden plunge in the oil price from $115 a barrel last June to below $50. Forecasts of its next move have ranged from $10 to $200, but it has stabilised in recent weeks trading above $50. A summit was called in Aberdeen and the Chancellor is under pressure to cut taxes for explorers.
However, the new survey suggests the industry is more resilient and better prepared to cope with the lower price than others indicate.
Two fifths (39%) of those questioned by Bank of Scotland acknowledged that the fall in oil prices had delayed planned investment in growth but they expect to take on 8,000 workers compared to 10,000 jobs recruited by the same firms over the past two years.
The price of oil emerged as the main concern, although it was only identified as such by fewer than 20% of the executives questioned. It came in fifth at 28%, some way behind the overall top challenge which is the increased cost of production, which was listed by 35% of participants.
The number of companies expressing a strong interest in diversifying into onshore shale production has increased by 27% from last year, whilst interest in renewable energy sources has also rocketed, with a 35% increase in firms expressing a strong interest. Seeking more flexible oil production and reducing exposure to price uncertainties are the main reasons for this spike in interest.
Other key findings include:
- Industry expectations for the price of Brent crude this time next year averaged $55 per barrel.
- Although tax was named by only 2% of firms as being the single biggest industry concern, it was amongst the biggest three challenges for 21% of the survey. When asked about what actions would stimulate North Sea activity, 36% opted for technology adoption, 33% for investment in skills.
- Among the opportunities arising is the increased possibility of mergers and acquisitions (M&A) – a quarter (24%) of firms surveyed hope to merge or acquire compared to only a tenth (9%) with such intentions in last year’s survey. The increased interest in M&A is especially pronounced amongst SMEs.
- The proportion considering international expansion has increased from 64% in last year’s survey to over 91% this year. North America (35%), Middle East (26%) and South America (25%) are most popular regions for international expansion.
- The last 12 months have caused acceleration in field decommissioning plans, with a strong 38% increase in firms expressing an interest in diversifying into decommissioning related work. The trend is particularly striking among major corporates where half are planning more decommissioning. While this will take fields out of production earlier than expected, it does create work for construction, marine services and other firms.
Stuart White, area director of commercial banking, Bank of Scotland, said: “While it is obvious the North Sea is facing some serious challenges, this research paints a clear picture of a global industry, which having dealt with similar commodity price challenges in the past, is determined to come through fitter and stronger.
“Firms continue to be concerned by an ageing workforce and a lack of skills, which explains why the industry is determined to get through the current storm without major workforce reductions. North Sea firms are seen as world leading so it is therefore not surprising they are looking at international expansion opportunities where they can enjoy continued growth backed by the strong expertise they have developed here in the UK.”
Responding to the report, Mike Tholen, Oil & Gas UK’s economics director, suggested it was more about aspirations and that issues remained that require immediate action.
He said: “We note that many of the more positive aspects of the report relate to the desire of many companies to diversify and grow their export business given the current challenges facing their home market. Whilst this reflects well on the quality of technology and expertise developed here in the UK, we need to sustain a critical mass of domestic activity to retain this valuable supply chain.
“Oil & Gas UK’s findings that investment in UK offshore oil and gas is due to fall by around one third this year, then by £3-4 billion per year in coming years, and that exploration has collapsed back to levels last seen in the 1970s, adds to the imperative to bring down the cost base, substantially reduce the tax burden and work closely with the Oil and Gas Authority to improve the stewardship of the UKCS.”